American Advice for Indian Growth

On May 21, the US Ambassador to India, Nancy Powell, addressed the Bengal Chamber of Commerce and Industry in Kolkata. She told the eager crowd of businessmen that “if India is to grow again, support for policies that are necessary for that growth need to be cultivated.” It is an amusing thing to be lectured at by an emissary of the US state on growth rates.

US first quarter growth of this year has now clocked in at a modest 2.5 per cent. India’s growth rate is about 5 per cent, easily double that of the US, and the United Nations’ Economic and Social Survey of Asia and the Pacific 2013 predicts that the rate will grow to 6.4 per cent during the rest of the year. No such predication exists for the US growth rate. The US figures surpass the anaemic 0.4 per cent growth rate in the final quarter of 2012, but these new figures will be dampened as the sequestration cuts take hold of the economy. US consumer spending is currently driving the growth, with sales of durable goods (cars and household appliances) leading the pack at 8.1 per cent. This section of consumer spending is buoyed by credit card debt, now at historic highs. The credit card debt bubble ($800 billion) along with the student debt bubble (over $1 trillion) could burst at any time, bringing down with them the meagre gains in the US economy.

None of this was in Ambassador Powell’s presentation. She spoke as if the US economy had returned to the 1950s, as if its factories were churning out cars and its workers were spending their wages on new houses built along the new freeways. Ambassador Powell didn’t bother to mention the convulsions in the IMF over US policy, with its Atlantic-friendly chief Christine Lagarde warning that US policies were not only threatening its recovery but also the global economy. But India’s growth rate was only the first pretext for Ambassador Powell’s dogma.

The second pretext followed soon after, that “GDP growth is not an end in its own right, since ultimately growth is to raise standards of living and eradicate poverty.” Poverty, she said gallantly, cannot be defeated without growth. Now this is not an uncontroversial idea. Growth is not a neutral process. A certain kind of growth trajectory might not reduce poverty, but indeed increase it. When IMF officials are honest about the facts, they cannot understand why this is so. On May 20, the day before Ambassador Powell’s Kolkata speech, IMF representative to Nigeria W. Scott Rogers looked at what he called a “conundrum,” the high GDP growth rate (7.2 per cent) in Nigeria and the high poverty rates (above 62per cent of the population). “Income per capita has gone up,” he noted in Abuja, “yet poverty isn’t improving and we’re having a difficult time understanding why that is or how that could be.” In the insular world of the IMF the elementary critiques of neo-liberal pathways of GDP growth are not digested. If they read these critiques, they would recognize that the kind of policies that propelled Nigerian growth are precisely what generate high rates of inequality, and so despite higher per capita income poverty rates remain stable or rise. A similar policy framework has been set in place in India, which is why, on May 18, the leading Marxist economist Prabhat Patnaik noted, “There has been a period of positive growth as far as the GDP is concerned. But during this period, there has been an increase in the magnitude of absolute poverty.” No conundrum here. The kind of GDP growth that India has embarked upon, and which Ambassador Powell wants to see intensify, is precisely what produces poverty and does not eradicate it.

Having lain out that India must grow again and that growth is an antidote to poverty, Ambassador Powell argued that the way to grow is to “open the economy and bring in more foreign investment…. It is past time to put to rest those out-dated notions that India suffers from economic openness and that India suffers from foreign investment.” Foreign Direct Investment (FDI) is, like GDP growth, not neutral. There are many different kinds of FDIs and, as studies by UNCTAD and other agencies show, most of them are not the best motors for financing development. In a paper for the G-24, Prabhat Patnaik argues that FDI “either goes into economies which are not short of real resources, especially foreign exchange reserves built out of cumulated export surpluses, which is precisely what enhances their appeal as investment destinations; or has the effect of rendering existing real resources in the host economies idle.” In other words, FDI rather than enhance development possibilities often stifles them. FDI mostly goes into the financial sector or service sector, two areas that do little for the vast bulk of the Indian working people whose lives have been vanquished by the neo-liberal pathway of growth. Ambassador Powell was reading from the talking points developed by the US Treasury, which is carrying water for US banks – the interest of the Indian people are camouflaged behind anodyne words about poverty alleviation. It is precisely Ambassador Powell (and the US Treasury) that are trying to flog “out-dated notions” of the utility of FDI for development – a proposition invalidated by the careful studies from UNCTAD over the course of the past decade, starting with the 2002 Expert Meeting in Geneva on the theme, “The Development Dimension of FDI: Policy and Rule-Making Perspectives.”

The day before this lecture Ambassador Powell spent over an hour with West Bengal’s beleaguered Chief Minister Mamata Banerjee. The CM asked the Ambassador to facilitate more FDI into West Bengal; much like the kind of FDI that helped set up the PepsiCo Frito Lay factory in Uluberia which Ambassador Powell had just visited. An earlier visitor to Writers’ Building, the West Bengal government offices, was Hillary Clinton in 2012 – then to coax Banerjee to let go of her populist opposition to FDI in retail. Now Ambassador Powell hopes to build on Clinton’s flattery and urge Banerjee to become one of the spear points for the “out-dated notions” peddled by the US Treasury. Banerjee, whose own government is shaky after the collapse of a ponzi scheme that seems to have been engineered by her party who then benefited from it, is eager to appear to be serious about development. The calculations of those around Banerjee indicate that she would like to be one of those regional leaders who the public associates with development rather than communal riots (Gujarat’s Narendra Modi) or who have been able to transform the image of their state from basket case to bread basket (Bihar and Nitish Kumar). It is because of venal domestic political designs, combined with the salivating business elites that Ambassador Powell can be taken seriously.